Options: Collar in Caterpillar

By Jud Pyle, CFA, chief investment strategist for the Options News Network

During the first hour of trading, an investor sold off the upside of Caterpillar (CAT Quote) stock to decrease the cost of downside protection, using a strategy that is often referred to as a collar.

The investor bought the out-of-the-money Nov. 29 puts for roughly $2.97 and simultaneously sold the out-of-the-money Nov. 37 calls 10,000 times for $1.27, netting around $1.70 per spread. The Nov. 29 puts, which changed hands approximately 11,000 times today, traded up 40 cents on the day. Investors traded the Nov. 37 calls, which traded down 38 cents on the day, more than 11,000 times as well. The Nov. 29 puts are home to open interest of 1,000 contracts and the Nov. 37 calls are home to open interest of 1,300 contracts. ...